This article outlines three recent cases which highlight some of the common pitfalls and important lessons in company restructures to avoid unexpected liabilities associated with redundancies.

Selection for redundancy

Lesson: proceed with extreme caution where there are potential unlawful reasons for the redundancy

Where there are potential unlawful reasons for the redundancy, employers should implement processes to ensure that employees are selected for redundancy on the basis of objective, non-discriminatory, consistent and fairly applied criteria. Potential unlawful reasons include an employee’s involvement in industrial activities and discriminatory grounds such as age, sex, incapacity or race.

In Construction, Forestry, Mining and Energy Union v Port Kembla Coal Terminal Ltd (No 2) [2015] FCA 1088, the Federal Court ordered the reinstatement of an employee who was made redundant after finding the employer’s decision to make his role redundant was substantively because, in his role as a union representative, he was perceived as a “serious impediment” to workplace change the organisation wanted to implement.

Reinstatement despite position being abolished

The Federal Court considered that reinstatement was appropriate even though the employee’s position had been abolished given the size of the workforce, the employee’s lengthy service and the employer’s failure to comply with its obligations under an applicable enterprise agreement, including in relation to consultation, voluntary redundancies and use of contractors.

Accessorial liability

The Federal Court also found that the employee’s manager, who was responsible for the decision to make the employee redundant, was personally liable for the unlawful conduct on the basis of accessorial liability.

Redundancy pay awarded despite employees obtaining other acceptable employment

Lesson: minimise redundancy pay costs in outsourcings and similar situations with agreements with third parties

Where possible, employers should ensure that outsourcing and similar agreements with third parties include an obligation on the third party to offer suitable employment and recognise continuity of service. If not, the agreement should at least reflect all the steps the employer has taken to ensure the transfer of employees or procure alternative employment.

In FBIS International Protective Services (Aust) Pty Ltd v Maritime Union of Australia [2015] FCAFC 90, the Full Federal Court required the employer to make severance payments to approximately 50 employees because it did not do enough to “obtain” new roles for them after losing a major contract.

The conduct of the employer in this case fell short of the statutory test for an exemption from redundancy pay or reduction to the amount payable because the employer had done nothing more than provide employees’ contact details to the potential new employer and had not facilitated an offer of employment which could be accepted or declined.

Genuine redundancy, consultation and redeployment

Lesson: employers should consult with all employees affected by a restructure, including those on leave

Before taking any steps to implement a restructure, employers must check that all award covered employees likely to be affected by the restructure have been consulted with and that all employees are considered for redeployment, even those on long and short term leave or other absences.

In Mohanan v China Southern Airlines Ltd [2015] FWC 6421, the Fair Work Commission held that a redundancy was not “genuine”, where the employer failed to comply with consultation obligations under a modern award and consider alternative options for redeployment despite the employee’s absence from work at the time.

Flawed process

The Commissioner rejected the employer’s argument that it could not have taken further steps to consult with the employee as she was overseas recovering from cancer treatment and unable to attend the meeting to discuss the redundancy which it had invited her to. It held that the employer should have:

  • consulted with the employee either by email or telephone, given face-to-face consultation was not possible; and
  • discussed redeployment options with the employee, including a less senior and lower paid position rather than assuming the employee would not have accepted the role.

Conclusion

Prior to implementing any workplace restructure, employers should carefully plan a detailed strategy and process for selecting employees for redundancy, notifying and consulting with them and pursuing redeployment opportunities for them to minimise the risks of unforeseen costs and other liabilities which could undermine the financial benefits of the restructure.